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6 Disruptive Trends in Pricing

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In the digital age, pricing has become a more strategic—and complex—discipline for CMOs and other business leaders. Six trends in particular are changing the way companies can both create and capture value.

Though pricing has long been a fundamental component of marketing strategy, it hasn’t always been a top-of-mind concern for senior marketers. In many organizations, midlevel managers in marketing, product management, sales, or finance collaborated to set prices. In recent years, however, as rapidly evolving technologies and business models transform many industries, strategic pricing—a holistic approach to delivering value and capturing revenue in a way that maximizes profitability—has become a priority for many C-level executives. Increasing amounts of data are also providing business leaders with new insights into customer preferences, value chain dynamics, and competitors’ strategies—with implications for pricing.

This changing business landscape presents the opportunity for CMOs to rethink pricing to drive growth and gain a competitive edge. To better understand today’s strategic pricing opportunities, CMOs can consider the following digital disruptions.

Price transparency and blurring sales channels. Pricing power dynamics are recalibrating as commerce continues to shift online. Many consumer products (CP) companies, for example, previously sold primarily through retailers, who ultimately determined the prices of products on store shelves. Now, however, CP companies increasingly sell directly to consumers and are gaining more control over prices as a result. The traditional siloes of B2B and B2C channels are blurring across a B2B2C experience in which data about the consumer is collected and shared. At the same time, today’s consumers have an abundance of pricing information at their fingertips, enabling them to find the best deal in moments based not only on the price point itself, but also on related components of the offer, such as discounts, loyalty points or rewards, and shipping cost. In addition, they will typically accept price differentiation across channels only if reasonable trade-offs are evident.

B2B buyers are also benefiting from increased price transparency and are bringing some of the expectations they’ve developed as consumers (for example, real-time pricing and inventory information, omnichannel experience, digital buying platforms, and “free” delivery) to their B2B experiences. For both B2C and B2B marketers, competing in this increasingly complex, transparent, and integrated commerce ecosystem requires a deep understanding of what buyers value, how much they are willing to pay, and what buying experience will lead them to choose one seller over another.

Subscription-based and flexible consumption sales models. From movie passes and printer ink to data storage and clothing, a growing number of products and services are available on a subscription or flexible consumption basis. The modern customer is increasingly asking for those models because of perceived benefits such as convenience, scalability, and cost-efficiency, but there can be significant value for sellers as well. Subscription and flexible consumption models can provide customer data about the initial purchase as well as ongoing usage. This can enable sellers to gain deeper customer insights, generate constant and more reliable revenue streams, and improve the efficiency of production runs. Pricing these new and nontraditional offerings requires understanding the customer-specific value drivers and defining the right price metrics (for example, per use or per unit of time) so the customer experiences a strong connection between the value of the offering and the price.

Highly personalized offers and dynamic pricing. Digital, data-driven marketing has enabled many companies to target customers and prospects with individualized offers and communications that can change in real time. Increasingly, these efforts include pricing tactics that are personalized based on customer purchase patterns and competitor activity. For example, marketers might target a customer with a personal offer or promotion based on the knowledge that the customer previously bought the product when it reached a certain price point relative to a competing product’s price. In addition, social media listening, online browsing habits, and geolocation data are all enabling marketers to personalize communications and prices based on customers’ real-time comments, browsing history, and physical location. Mining these buying patterns, in combination with a good understanding of what customers value, can allow marketers to maximize profitability by tailoring offerings to an unprecedented degree. In turn, customers’ decisions to accept or reject these offers create more data, which can enable further refinement of the offer.

Price management and optimization based on cognitive technology and algorithms. Robotic process automation can help organizations streamline repetitive pricing tasks, such as monitoring and analyzing competitors’ prices. Automation has also streamlined the assessment, scoring, and approval of B2B sales. Where sales reps previously had to secure manager approvals to offer discounts beyond a certain threshold, organizations can now use algorithms to analyze a more sophisticated and nuanced set of metrics to determine whether a deal is satisfactory or not. Beyond process automation, machine learning can enable companies to price more effectively—for example, by identifying which price points across a plethora of conditions were most strongly correlated with successful deals and actual purchases, and automatically adjusting prices accordingly. Companies not yet exploring these technologies can consider which components of their pricing strategy could benefit, and how best to begin early-stage projects.

The salesforce of the future. As customers interact in more digital ways and expect personalized experiences, the sales team’s toolkit and skills are changing drastically. Armed with numerous digital tools and data, salespeople have more information than ever, sometimes knowing even more about customers than the customers themselves. As sellers collect and analyze more sophisticated data sets, they can often turn the tables on the buyers’ procurement departments, which typically have had the upper hand over the past two decades because of their ready access to transactional data. Today, sales often has deeper insights into buyers’ companywide purchases, while procurement teams are typically aligned by division and therefore have insights limited to a single business unit. With a more integrated and cohesive view of the buyer’s needs across all divisions, sellers can offer much more attractive products and prices. This view also can provide a secondary benefit in that cross-divisional purchases often require the attention of an executive business owner.

Pricing as a service. As pricing becomes more complex, cloud-based pricing solutions have emerged, enabling organizations to build pricing capabilities in new ways and with different cost structures. Cloud-based applications can provide companies with options for embracing more sophisticated tactics—such as dynamic pricing—in a more cost-efficient way. For example, tools such as CPQ (configure-price-quote) applications, which help automate and guide the salesforce through the complexities of offering personalized and dynamic prices, are now almost exclusively cloud-based. Previously, investments in enabling technologies could have been prohibitively expensive for companies in terms of time, resources, or capital, which limited the advancement of a company’s pricing capabilities. Now, the cloud is acting as a catalyst to accelerate pricing capability development, adoption, scalability, ROI, integration with other systems in the commercial value chain, and digital data collection.

Pursuing Strategic Pricing

CMOs seeking to practice strategic pricing in the age of digital disruption can note three key takeaways. First, it’s time for many organizations to modernize their pricing strategies, shifting from a product-focused perspective to a customer-first approach. Understand what customers value, customize offerings, and price them accordingly.

Second, the growing availability of data is dramatically rewriting pricing rules for organizations across industries. Leading through the current digital disruption—rather than being disrupted—requires CMOs to have a clear data strategy and a strong partnership with the CIO. (Notably, despite persistent misconceptions, data does not need to be perfect to be usable.)

Last, after developing a more customer-focused, data-driven approach to pricing, create discipline around it. Consider ways to leverage the latest digital tools and technologies, and pursue quick wins that allow the organization to learn quickly and iterate. After all, organizations that are agile are far more likely to survive the next disruption—or even drive it.

6 Disruptive Trends in Pricing

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